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Japanese Yen Weakens on Machine Tool Data, Business Sentiment

The Japanese yen is weakening against major currencies on Tuesday, driven by poor economic data and bearish business sentiment. While officials have dismissed concerns of an economic contraction, the market is signaling that a recession is nigh, which could only intensify in a cooling global economy and trade war.

According to the Japan Machine Tool Builders’ Association (JMTBA), machine tool orders plunged 29% in February compared to the same time a year ago. This represents the biggest decrease since October 2009 and is the fifth consecutive decline. It also comes as factory output slumped the most by a year in January and exports feel for the second straight month.

All these factors suggest that a global slowdown is impacting the world’s third-largest economy. The US is engaged in a trade spat with China, economic uncertainty lingers in Europe, the Canadian economy is stagnant, and Tokyo could soon participate in a trade war with the world’s largest economy.

This might be the reason why business conditions and sentiment are at their worst levels since 2016.

The Finance Ministry’s quarterly Business Survey Index showed a reading of -7.3 for conditions among the nation’s largest manufacturers in the first quarter of 2019. The study has not been this low since the second quarter of 2016. The same index highlighted that sentiment among medium-sized manufacturers was the poorest in close to five years. Small manufacturers also had the worst sentiment since 2013.

But Tokyo is urging everyone to not expect the economy to worsen. Should a significant slowdown transpire, then launching a comprehensive stimulus program “without delay” is essential, says some Bank of Japan (BOJ) officials.

The USD/JPY currency pair rose 0.06% to 111.28, from an opening of 111.21, at 18:37 GMT on Tuesday. The EUR/JPY surged 0.56% to 125.74, from an opening of 125.06.